Cuba has concluded a deal with certain of its Paris Club group of creditors to restructure its debt on favorable terms.
The Cuba Group of the Paris Club creditors includes 14 of the 19 sovereign, industrialized nations that have existing defaulted debt with Cuba. France is the largest single creditor. The US is not part of the Cuba Group of the Paris Club creditors included in this negotiation.
A clause permits the signatory parties to negotiate “as soon as possible” similar debt not included in the current accord.
The Paris Club generally refers to a country’s sovereign bilateral creditors; the London Club referrers to a country’s commercial creditors. Cuba has yet to resolve its London Club creditors obligation.
The current Paris Club terms are generous to Cuba. Creditors have forgiven $8.5 billion of Cuba’s $11.1 billion debt. The deal covers official debt defaulted on through 1986, plus interest, service charges and penalties. All the debts were denominated in euros and other currencies.
According to a Paris Club statement, “This arrangement offers a framework for a sustainable and definitive solution to the question of arrears due by the Republic of Cuba to the Group of the Creditors of Cuba covering a total stock of debt of $11.1 billion, including late interest, as of 31 October 2105.”
According to Reuters, the Cuba Group calculates Cuba’s total debt to Paris Club members at $11.1 billion, which is less than previously reported $15 billion. Interest is forgiven through 2020, and after that is just 1.5 percent of the total debt still due.
“This is an astoundingly generous deal, a fabulous agreement for Cuba,” said a foreign banker with years of experience in Cuba. “They would have to be crazy to screw it up.”
Repayment is structured over 18 years and annual payments gradually increase from 1.6 percent of the $2.6 billion owed, total, or about $40 million, in 2016 to 8.9 percent in 2033.
If Cuba does not meet the payment schedule by Oct. 31 each year, it will be charged 9 percent interest until payment, plus late interest for any portion in arrears.
Resolving Paris Club debt could be part of a plan for Cuba to rejoin the international financial institutions like the World Bank and become eligible to access development finance again. The island nation is struggling under pressure to upgrade its long-neglected infrastructure.
The US Helms Burton Act – part of the US embargo against Cuba – provides for the US to oppose Cuba’s application for acceptance in the world’s international financial institutions.
According to the agreement, the Cuba Group creditors can negotiate debt swaps on a bilateral basis for up to 30 percent of the debt they are owed, or $20 million in development assistance, whichever is higher.
In 2013, Russia forgave 90% of the $35 billion Soviet-era debt it was owed.